Alasdair Macleod

About the Author

Alasdair Macleod is head of research for GoldMoney. He also runsFinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. He has a background as a stockbroker, banker and economist. He can be contacted at Alasdair.Macleod@GMYF.org and followed on Twitter @MacleodFinance.

Many people believe there is a significant risk that the Irving Fisher debt-deflation theory of great depressions is still an economic threat today. They overlook the fact that he published his theory examining debt-deflation events under a gold standard.

Last Wednesday the Fed surprised most people by deciding not to taper. What is not generally appreciated is that once a central bank starts to use monetary expansion as a cure-all, it is extremely difficult for it to stop.

A number of readers and bloggers have recently suggested there must be collusion between America and China over the transfer of physical gold from Western capital markets. They assume that governments know what they are doing, so there is a bigger game afoot of which we are unaware.

Gold was hammered overnight in Asia on Wednesday, and on Thursday slid further to test the $1,200 level. At these prices, increasing numbers of gold mines are unprofitable, as evidenced by the appalling performance of their shares.

Recent statistics are confirming “economic recovery” in the U.K. and even in some of the weaker Eurozone states. I put this in quotes because what we are seeing is expanding nominal GDP, which is not the same thing.

By December, the most recent month for which statistics are available, the U.S. dollar Fiat Money Quantity (FMQ) had grown to $12.48 trillion. This is $5.05 trillion more than if it had grown in line with the established average monthly growth rate from 1960 to the month before the Lehman Crisis.

Western economic commentary on China and Russia is usually colored by monetarist assumptions not necessarily shared in Moscow and Beijing. For this reason, the reasons their governments buy gold is not understood.

Thanks to the Fed's tapering, a wider public is becoming aware of currency instability in diverse economies, from Turkey to Argentina, and India to Indonesia. Indeed, on Tuesday night Turkey raised overnight interest rates by a whopping 4.5% to 12% in an attempt to stop a run on the lira.